The Best States for Starting a Business
While the climate for startups is generally favorable in most states, some are better than others. According to Seek Capital, the top four states for starting a business are:
Seek Capital based its list on a variety of key economic factors, including the:
- startup early survival rate
- five-year working-age population
- rate of new entrepreneurs
- number of jobs created per startup in the first year
- venture capital invested per new company
- cost of living and real labor compensation per hour, and
- business tax climate vary from state to state
Below, we explain in more detail why each of these states is a great place to start a business.
Seek Capital names Utah the number one state in which to start a business for a variety of reasons. For example, its working-age population grew by 9% between 2013 and 2018.
In addition, venture capitalists are bullish on Utah. They invested $1.16 billion in 101 Utah-based companies in 2019 - the fifth-highest total among all states (ahead of Maryland and behind New York).
Utah also had one of the highest growth rates of establishments from 2006-2016. The opportunity share of new entrepreneurs and the rate of job creation by startups are also better than average.
Finally, Utah has a favorable business tax climate, rating eighth in the country in 2021 according to the Tax Foundation. In particular, the state’s flat corporate income tax rate is relatively low at 4.95%, and it has only two personal income tax brackets.
On the downside, while LLCs in Utah pass profits and losses through to the members’ personal tax returns, corporations don’t.
Rowena Montoya, owner of JulieAnn Caramels in Sandy, Utah, says Utah is friendly to small businesses (including startups) in part because of the support the government provides.
“I feel the state helps you meet all the regulations you need to do business,” she says. “I had [a state inspector] here, and he said he was there to help me succeed. How many inspectors tell you that?”
Montoya is also grateful for the support she has received from other Utah businesses. “The community will always support people who are trying,” she says.
For example, she says that larger businesses help smaller ones to survive during hard times, including during the COVID-19 pandemic. In addition, the governor’s office provides mentors for small companies and helps them with grant applications.
Kamea Johnson, owner of Chosen Creative in Salt Lake City, says that Utah has “come a long way” in supporting women in business. For example, she says the Salt Lake Chamber of Commerce, the Women’s Business Center of Utah, and the Utah Department of Economic Development helped her make business connections and take advantage of resources she would never have found on her own.
“They genuinely wanted to see businesses excel, and this is what I feel sets Utah apart from other states – its willingness to support small and disadvantaged businesses,” she says.
Johnson also praises Utah for its lack of red tape. There are “no outrageous fees or hidden agendas – it was all straightforward and fast.”
Moreover, it’s easy to manufacture her products in Utah.
“You can make almost anything in this state,” she says. “I manufacture my entire stationery line here in Utah, from the sourcing of the paper to the printing, cutting, and packaging.”
Learn how to start a business in Utah today.
Florida’s top marginal corporate income tax rate is relatively business-friendly - 5.5%. Moreover, real labor compensation costs are among the lowest in the country, and employees appreciate the lack of a state income tax for individuals.
Florida also has the highest rate of new entrepreneurs, with 0.46% of Florida residents starting a business. In addition, startups created a relatively high average of 6.41 jobs during their first year of operation. Plus, 18.8% of those companies got off the ground with less than $5,000.
Lastly, the Tax Foundation rates Florida fourth in the country in terms of its business tax climate. Its corporate income tax rate is the fourth-lowest in the country at 4.46%, it has no individual income tax, and it levies relatively low unemployment insurance taxes.
Learn how to start a business in Florida today.
Texas is a great place to start a business for a number of reasons. Not only does it have a huge economy, but it experienced the second-biggest GDP growth from the first quarter of 2018 to the first quarter of 2019 at 5.1%.
Other factors weigh in Texas’ favor as well. For example, the state’s working-age population grew by more than 1.3 million (7.7%) from 2013 to 2018.
Texas also has a relatively low cost of living – especially when it comes to buying property – which makes it an affordable place for employees to live. Finally, venture capitalists invested more than $2.68 billion in the state in 2018, the fifth-highest amount nationwide.
Learn how to start a business in Texas today.
More startups survive in Colorado than in most other states, with about 81% staying in business a year after starting. Startups also create a lot of jobs in the state.
Colorado’s tax climate is fairly good for businesses overall, with a relatively low top corporate income tax rate of 4.63%. Colorado’s sales and income tax rates are comparatively low as well, although the state does impose an alternative minimum tax on individuals.
Beyond tax policy, Colorado’s economy is generally good for starting businesses. In particular, it had strong GDP growth from the first quarter of 2018 to the first quarter of 2019, and its working-age population is growing quickly (7.2% over the past five years).
Learn how to start a business in Colorado today.